A Rambling Response to Another Class's Problem

My Intro to Public Policy class has several connections to Public Choice. More than just acting as a helpful review for this class, it’s fascinating to see public choice from the policy side so I can get a complete picture of the topic. We’re currently discussing market failures and comparing the effects of government intervention and failures to market intervention and failures, specifically around the climate crisis. An article by the economist Paul Krugman, advocating for government intervention, promoted Pigouvian taxes to limit pollution. Another article by the economist John C. Goodman advocated for a Coasian solution, trying to limit transaction costs by using the market instead of government.

I disagree with many of Goodman's points, but I'll focus my attention on his view of politics and climate change. He claims politicians have no incentive to move toward a Pareto optimal condition. I would disagree. In a representative form of government, politicians only hold power because the people placed them there in the first place. To argue that politicians won’t move toward a socially optimal equilibrium is wrong. Take, for example, the use of Pigouvian taxes mentioned in Krugman's article. There, politicians tried to manipulate the market toward a socially optimal point, minimizing the negative production externalities of climate change.

Goodman claims climate change results from a government failure, not a market one. Government inaction has indeed placed us in this position. However, a push toward profit maximization, spurred by Adam Smith’s ideas, led to the Industrial Revolution. The Industrial Revolution led to massive amounts of pollution and climate change. Government has had the chance to mitigate the effects of climate change through Pigouvian methods, but proponents of a free market solution have curbed their ability to succeed. Effective governments can help their citizens in ways markets cannot, a point Goodman seems to miss here.